Business / Banking

Wednesday, Mar. 20, 2002. Page 5

State to Pay for VTB With Bonds

By Victoria Lavrentieva
Staff Writer

By leaving his post as chief of the Central Bank, Viktor Gerashchenko has removed the biggest obstacle to selling state-owned Vneshtorgbank, considered a key step in overhauling the banking sector.

According to a deal approved by the Cabinet in November, the Central Bank will sell a 40 percent stake in VTB to the government by Jan. 1 for an undisclosed amount of ruble bonds issued by the Finance Ministry, Kommersant newspaper reported Tuesday. The bonds have a 15-year maturity and an annual return of 1 percent.

VTB, Russia's second-largest bank, will then issue an additional 20 percent stake, which will be sold to the European Bank for Reconstruction and Development. The remaining 49 percent will be sold to a strategic investor or the government, bringing the Central Bank's stake in VTB down to 25 percent plus one share from the current 99.9 percent.

Gerashchenko had opposed the deal, demanding cash rather than Finance Ministry bonds, and said the sale should not be completed anyway before 2004. But his likely replacement, Sergei Ignatyev, supported the plan to sell VTB as deputy finance minister and said the Central Bank would withdraw from VTB by Jan. 1 as planned, Vedomosti reported.

Analysts said the deal was bad for the Central Bank, which will get practically nothing for selling the stake.

"Now it is clear that the government won't pay anything and the Central Bank is to leave VTB in short notice," said Mikhail Matovnikov, deputy general director with Interfax Rating Agency. The major disagreements between Gerashchenko and the Cabinet were about the price of the stake and the timing, he said.

VTB has market capitalization of $1.5 billion, said Troika Dialog analyst Andrei Ivanov, which means the 40 percent stake should cost $600 million.

The state will remain VTB's main shareholder, the controlling stake will simply be transferred from the Central Bank to the Finance Ministry, Ivanov said. "The settlement issue is between the Central Bank and the Finance Ministry because VTB won't get any fresh money in any case."

By forcing the Central Bank out of VTB, the government is solving a conflict of interest between the regulatory and commercial functions of the Central Bank, analysts said.

International financial organizations have considered Central Bank involvement in commercial banking one of the biggest obstacles to fair competition and development in the financial sector, and both the Central Bank and the government agreed that the conflict of interests needed to be solved.

VTB received about $1.5 billion from the Central Bank to buy its stakes in former Soviet trade banks, as well as to pay back loans to foreign creditors after the 1998 crisis, Matovnikov said.

The Central Bank provided financial support to recapitalize VTB after the 1998 crisis, Troika's Ivanov said. "It is hard to say for sure how much was invested in real terms, but the Central Bank is losing in this deal."


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